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By ccflyers on May 21, 2016

If you’ve got kids, you’ve already helped them learn a lot: how to eat properly, how to walk, how to share, and how to cross the street safely. As they get older, the lessons don’t stop; they just get more sophisticated. One lesson that’s very important to teach your kids is how to use credit wisely. Here’s the best way to do it.

Teach them about debt. Kids should understand that a credit card is not a license to buy whatever they want. They need to understand that there is good debt and bad debt. Good debt is debt that is worth having, like a mortgage, a student loan, or maybe a car loan. Bad debt is debt that’s racked up by impulse purchases and reckless spending. Being in debt is not necessarily a bad thing; but not being in debt is always preferable. Teach your kids not to be afraid of debt, but not to think that being in debt is a permanent and acceptable state, either.

Teach them about interest rates. Many adults don’t even really understand interest rates, so you couldn’t be blamed for not teaching your kids. If you don’t know, then get educated together. Basically, a low interest rate is a good interest rate. If you’ll be paying debt off over time, you’ll have an interest rate that dictates how much extra you will pay over the life of the loan. Many credit cards have zero interest promotional periods that can be a great way to make a big purchase and pay it off over time, interest-free. Knowing how interest rates work will put your kids ahead of the curve.

Teacch them about due dates. Paying your bills on time is crucial, and especially when it comes to credit cards. To have the best credit score, always pay your minimum amount due by the due date. Teach your kids to set up automatic payments, payment reminders, and anything else they need to help them make those payments on time.

Teach them about credit scores. Credit scores will dictate what sort of interest rates you’re offered on credit cards and mortgages, whether you’re approved for an apartment lease, and whether you can get a personal loan or a business loan. Teach your kids about the five things that go into a credit score: payment history, credit to debit ratio, types of credit, new credit, and length of credit history.

Get them a prepaid card. A prepaid card is kind of like a credit card with training wheels. In fact, it isn’t a credit card at all, because you are only spending money that is preloaded onto the card. But you use it largely the same way as a credit card, swiping or tapping it at the register, keeping an eye on the balance, and keeping good track of it. Having a prepaid card is good practice for the day your kids get a real credit card. When you’ve taught them all of these things, they’ll be ready to use it responsibly.

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